[Editor’s Note: This article was updated to adjust for a factual inaccuracy regarding a workforce cut in Marathon Oil. The implied cut was actually to Marathon Petroleum.]
At the beginning of October, troubled shale major Marathon Oil (NYSE:MRO) claimed to “maintain a solid balance sheet.” That’s a bold statement from a company that has lost a fair bit of shareholder value for Marathon Oil stock holders over the years.
We’ll certainly take a closer look at how much shareholder value has been lost. We’ll also delve into the veracity of the “solid balance sheet” claim. I must say that Marathon Oil gets an A+ for chutzpah, but the company still gets an F for its state of fiscal health.
Marathon Oil Chief Executive Lee Tillman even went so far as to claim that his company has “successfully repositioned” itself “for success in a lower, more volatile commodity price environment.” As I see it, Tillman had better hope for higher and less volatile petroleum prices.
Even if the oil price goes higher and stabilizes, this doesn’t guarantee the longevity of Marathon Oil. Whether the company is headed towards bankruptcy or not, it’s simply not a safe bet to own Marathon Oil stock today.
Marathon Oil Stock at a Glance
It’s difficult to imagine a stock remaining in business for half a century and the share price not going up over that period of time. Yet, this is the reality of Marathon Oil stock.
If you don’t believe me, I invite you to check the historical price action of Marathon Oil stock over the years. Astoundingly, you could have bought a share of this stock at more than $6 on the first day of 1970. At the close of the trading session on Oct. 23, 2020, that same stock share would be worth $4.44.
Sure, there were dividends to collect along the way. Or at least, sometimes there were dividends, though in May of this year, Marathon Oil suspended its dividend payouts. That was around the same time the company reported a first-quarter loss of $46 million.
The dividend payouts have been reinstated, and we’ll talk about that. For the time being, prospective shareholders should know that there’s an earnings event coming up on Nov. 4. And speaking of earnings, Marathon Oil stock has trailing 12-month earnings per share of around -82 cents.
Wrong Time for a Dividend
That negative earnings-per-share number is fairly worrisome, especially considering that the stock is just $4 and change. It should make anyone reconsider owning Marathon Oil stock before, during or after the upcoming earnings event.
Let’s talk about that dividend now. Perhaps as part of the company’s claim to “maximize long-term shareholder value,” Marathon Oil recently reinstated its dividend, setting it at three cents per share.
It’s hard to imagine that those three cents per share will provide much solace if the stock price continues its long-term downward trend. Besides, Marathon Oil should focus on saving as much money as possible. Distributing dividends isn’t the way to accomplish that.
About That Balance Sheet
I almost feel like we’re getting mixed messages here. Marathon Oil recently completed a cash tender of $500 million worth of senior notes. Obviously, the idea here is to reduce the company’s sizable debt load.
But then, the company’s opting to pay out dividends again. What gives? If Marathon Oil is going to tighten its belt, then this isn’t the right time to be generous with the company’s shareholders.
As for Marathon Oil’s claim to have a “solid” balance sheet, I’m not convinced that the numbers add up. A quick check reveals that for the trailing 12 months, Marathon Oil had $2,147,000 in operating cash flow.
That sounds all fine and good until we look at a couple of other stats. Specifically, for the trailing 12 months, Marathon Oil had investing cash flow of -$2,604,000 and capital expenditures totaling -$2,234,000. If I had to describe this fiscal situation, I would use the word “shaky,” not “solid.”
The Takeaway
It’s hard to predict the future direction of the oil price. Marathon Oil seems to be awfully confident in its longevity and fiscal health in this uncertain oil market.
Given the numbers I’m seeing, I simply cannot recommend Marathon Oil stock as a safe investment right now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
